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Should you invest in property now?

Monday, November 08, 2010

With soaring property prices and contradictory views the question being asked is: Should property be bought at these levels. Real estate expert and Head – Development Initiatives, Jones Lang LaSalle India’s,  Joy Sanyal weighs the pros and cons. A report…

The market for residential property in Mumbai was very upbeat in the fourth quarter of last year and the first quarter of 2010. It started showing signs of stability since the third quarter, most visibly in South/Central Mumbai, where investors had begun to outnumber actual end-users by then.
Interestingly, the deeper suburbs (Borivali and beyond) and the far suburbs like Thane and Navi Mumbai continued to be dominated by end users. In fact, the residential market in these locations has shown steadily increasing potential for the last two years. It was only the prime locations in South and Central Mumbai that began to fray at the edges.
Barring another economic calamity on the lines of Lehman Brothers – which could obviously affect the entire global economy – a sudden dip in any location of the Mumbai residential sector is improbable. The city continues to be the most robust real estate market in the country; factoring in all the advantages it has, this is not going to change in the foreseeable future. Property investors continue to perceive that investing in flats in Mumbai is always going to be profitable, regardless of location and other variables.
A Word on the Overpriced Locations
The movement of property rates in Mumbai is something of a global legend – especially when it comes to areas like Nepean Sea Road, Colaba, Cuffe Parade and Worli Seaface. The buzz on the streets is that the property prices there have gone through the roof, and that they cannot sustain at those levels for much longer.
However, the simple fact remains there are always buyers for these locations. The number of India’s billionaires is increasing with every passing year. A majority of them live in and operate from Mumbai, Delhi and Bangalore. For those in Mumbai, the primary choices of residential location are inflexible. It derives that there will continue to be demand for homes in these areas in the foreseeable future.
A risk of price rationalization for these locations does exist. However, it is difficult to make any accurate predictions for a correction when it comes to locations with such limited supply and such a massive advantage of economically privileged demand.
But then, how many of the bulk of Mumbai real estate investors are looking at those locations in the first place? It is the suburban locations that have the greatest growth and appreciation potential, and there is no immediate risk of correction there.
Buying Residential Property in Mumbai
All this has pertinence to those who are indecisive about whether or not to invest in the Mumbai property market this festive season. While Diwali is the traditional time for most Indians to take the ‘property plunge’, many would-be investors are wondering whether it would be wiser to wait for prices to come down. The message here is that it is both safe and profitable to buy property in Mumbai’s suburban locations – particularly Thane and Navi Mumbai.
The pricing may seem to be on the higher side in many of the micro-locations, but one needs to consider that the project outlay has also risen substantially.

Construction costs for housing projects in Mumbai now hover around the Rs. 2000 / sq.ft. mark and developers incur these costs along with the price of the land for their projects. Accordingly, projects with pricing at around Rs 4000 / sq.ft. in Mumbai’s suburbs fall in the value housing category, which has definite appreciation potential.
Considering the geographical constraints and severe shortage of land in South/Central Mumbai, the city cannot grow anywhere but in the northward direction of the suburban locations. Major Infrastructure initiatives by public bodies are rendering these suburban locations even more attractive for housing investment.
To give an example – a residential property investment in a location like Panvel, Navi Mumbai, puts the investor squarely in line for the benefits of many proposed infrastructure initiatives. These include the Navi Mumbai airport, the Nhava-Sewri sea link, a large entertainment complex and sports complex, etc. Navi Mumbai already enjoys strategic proximity to Lonavala and Pune via the Expressway and improved access to Mumbai. The value of a residential property investment in Navi Mumbai is bound to go up by the sheer push of infrastructure.

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